Reduced supply from Egypt and China and increased demand in the U.S. and Brazil change market dynamics this summer
WINNIPEG — The June and July period is normally a quiet time in the global market for urea.
In most years, North American farmers are done buying for the growing season and Brazilian buyers usually wait until September to make urea purchases for the safrinha corn crop.
However, it wasn’t a quiet time this year. As a result, prices are out of whack with expectations.
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“The thing that’s noticeable this year in North America is the summer … price was not as low as anticipated,” said Noah Bishop, urea product line manager at ADM Fertilizer.
“It’s at a premium to last year, when crop/commodity prices were higher.”
It’s difficult to nail down the retail price of urea in Western Canada because there are few public sources of information.
Genesis Fertilizers, which plans to build an ammonia and urea plant in Saskatchewan, regularly publishes a market report.
In mid-July, based on data from Green Markets, Genesis said urea prices in Western Canada were $630 to $640 per tonne.
That’s lower than prices from Alberta Agriculture, which pegged urea at $800 per tonne in its May report on crop input prices.
Prices in New Orleans, the main port for North American urea imports, were around US$300 per short ton.
Those figures are higher than expected because crop prices are lower than they were last summer.
Corn futures in July 2023 were around $5 per bushel and this July they’re at $4.10 per bu.
“Farmers were confused,” said Bishop, who lives in Regina.
“Typically, people expect a strong correlation between crop values and urea prices.”
However, that correlation didn’t hold in June and July for a number of reasons.
On the supply side, Egypt diverted natural gas supplies to domestic use this spring.
“A gas supply crunch in Egypt has hampered urea production since May 20 as the country prioritized gas deliveries to power plants to meet summer cooling demand,” Argus Media reported in July.
The urea plants in Egypt are now back to about 80 per cent capacity, but urea production was essentially shut down for a month or longer, Bishop said.
Then, there is China.
“Chinese urea exports are the lowest they’ve been in 20 years for the first half of the year,” Bishop said.
Since about March, the Chinese government has not approved export permits for urea. The Chinese use this policy to maintain supplies for domestic farmers and keep prices low.
On top of the production issues in Egypt and lack of Chinese urea exports, the United States and Brazil bought and consumed more urea than expected in June.
“We had a bunch of different markets that typically have weaning demand (in the late spring) that lead to those low (summer) prices,” Bishop said.
“The demand lasted longer than (what is) typical.”
In the U.S., wet weather extended urea purchases and application into June.
“It was consumed … because the season was so wide and those tonnes were still able to go to ground,” Bishop said.
In South America, the Brazilians usually purchase shipments of urea in September or October for the safrinha corn planting in January.
However, this year Brazil bought some of its urea supply in late May, providing an outlet for urea producers, Bishop said.
Over the next 30 to 45 days, U.S. buyers will need to attract cargoes of urea to New Orleans so deliveries can be made along the Mississippi River.
That means the U.S. market for urea should be “buoyant compared to the global market,” for August and into September, Bishop said.
Plus, the international market looks supportive for prices, with India just making a major purchase of urea for delivery in late August.
What this means for western Canadian farmers is that prices are likely to rise. There is typically a seasonal jump in the fall because the upper regions of the Mississippi are closed to shipments in late November and it becomes more difficult to move urea into Western Canada.
If the international market remains the same, “Canadian prices will increase as we move into September, October and November,” Bishop said.
Canadian producers may want to consider buying some urea this summer.
“I think they should be owning some urea at these (price) levels,” he said.
Without any changes, globally, the Canadian market is more likely to “increase than decrease.”
